Sunday, December 8, 2013

THE simple, routine exercise of a property revaluation in the city
of Kuala Lumpur has somehow turned controversial due to the lack of
apparent justification, given the magnitude of the increase and scarcity
of explanation.

Perhaps, the people in Government think there is no need for some
form of elementary public relations and that having power is enough.
There was practically no public engagement, consultation or attempt to
seek feedback from stakeholders.

If such a simple task as revaluing the properties in Kuala Lumpur
cannot be carried out diligently and in a responsible manner, I am
concerned with the impending introduction of the more complex goods and
services tax (GST). Will the levy and collection of the GST be properly
handled?

The National House Buyers Association (HBA)
is dismayed with the unilateral and arbitrary proposal by the Kuala
Lumpur City Hall (DBKL) to increase the revaluation of properties in
Kuala Lumpur for both private and commercial properties. It is not that
DBKL cannot exercise the process of revaluation under the Local
Government Act, but the issue is that it is “simply doing it”, literally
speaking. The media has widely reported that the increase could range
between 70% and 300% in certain areas.

The reasons given by DBKL for the increase as reported in the media are as follows:

(i) the last increase was more than 20 years ago; and

(ii)property prices have increased in value.

HBA would like to highlight certain pertinent issues which should be taken into consideration.

(i) Most private properties are owner-occupied

A majority of private homes in Kuala Lumpur are owner occupied, and many are retirees and pensioners.

Based on this logic, regardless of the increase in the market value
of the said property, the owner does not reap any benefit as he is still
living in the said property. It would, thus, be unfair to penalise the
owner for the increase in property prices when he has not enjoyed any
such benefit arising from the continuous ownership.

The owner would only be able to enjoy any increase in property
prices when he decides to sell the said property to a third party. To
say that property owners should be thankful to DBKL for affixing a high
valuation on the property because property owners would be able to sell
their property at a higher market value is preposterous. Assessment is
based on market rental and not vice versa.

(ii) Many private homes are long-term investments

Many individuals use private homes as long-term investment to fund
post-retirement needs or their children’s education expenses. It would
be very burdensome to these people who have managed to save enough to
acquire a second private home as a long-term investment as the returns
from such an investment are just barely enough to cover expenses of the
property itself such as this savage increase of rates proposed by DBKL.

(iii) An increase in assessment rates does not translate into better services

Would such a revision commensurate with the quality of services to
be provided by DBKL in justifying such an increment? Currently, it would
seem that there is no discernible improvement in either service or
facility. It is only reasonable to expect a 300% increase in the level
of service quality if DBKL is going to increase the assessment rates by
up to 300%.

For DBKL to increase assessment rates without promising an equal
increase in the level of service quality is morally wrong and akin to
snatching candy from a baby; the culprit merely snatches the candy away
knowing that the baby cannot fight back.

(iv) Poor planning and indiscriminate approvals

Poor planning and indiscriminate approvals granted by DBKL to new
developments without indepth studies on the impact to the surrounding
environment, especially existing housing estates, have overloaded the
existing infrastructure. The servicing highways, byways and main
carriageways today have excessive volume of traffic that was not catered
for originally. This has resulted in long crawls at peak hours in many
places.

In certain neighbourhoods, the communities are plagued by haphazard
parking along the road reserves due to lack of enforcement.

(v) Against the Government’s aspiration to help the rakyat

Our honourable Prime Minister has decided to lower the personal
income tax rates to lighten the burden of the rakyat in view of the
impending GST. DBKL’s move to increase the assessment rates by such a
high rate will be burdensome to the rakyat and goes against the very
grain of our PM’s wishes to lighten the rakyat’s burden.

HBA does recognise the fact that there are speculators who may have
amassed multiple properties. However, an increase in assessment rates
will only penalise the majority of private home-owners who only own one
or perhaps two properties. HBA had in the past proposed a higher real
property gains tax (RPGT) and stamp duty for the transfer of properties
to be imposed on such speculators who had amassed numerous properties.
The measures announced in Budget 2014 by our Prime Minister and the
recent strict lending guidelines imposed by Bank Negara
have, to a certain degree, curbed and muted such unhealthy manipulation
of property prices. The effects can be seen in the recent announcement
by the National Property Information Centre or Napic under the Valuation & Property Services Department
data “that the property market is expected to see slower growth this
year (2013), as there will be an adjustment in terms of prices, which is
expected to moderate”.

This, in turn, brings us to the question: “Does this mean that DBKL
will undertake another round of revaluation for a subsequent
corresponding reduction following the announcement?”

Advice to taxpayers

HBA urges DBKL to reconsider its decision to increase assessment
rates for private homes in Kuala Lumpur based on the above-mentioned
points. If DBKL wishes to increase the assessment rates for private
homes and commercial properties to cover the increase in operating
costs, then HBA proposes an increase of not more than 10% of the current
tax.

Although the Mayor and Federal Territory Minister have assured the
people of a possible reduction as they understood the taxpayers’ plight
and hardship, the ‘Notice of Revision of the Valuation List’ under
Section 141 of the Local Government Act, 1976 (LGA) was sent out. Why is
this so?

To the taxpayers, let’s comply with the law and its due process by
filing our ‘Notis Bantahan’ (NOT LATER than Dec 17) pursuant to Section
142 of the LGA rather than be caught in a situation of ‘by default’ or Mr Mayor and Mr Minister
using the usual “there were only a handful of official written
objections” rhetoric. The objection letters are absolutely necessary.

We have prepared three templates as a guide to object against the proposed hike, which can be uploaded from our website at www.hba.org.my.
The templates are merely guidelines to facilitate the process. You are
at the liberty to improvise the drafts as well as seek independent
professional advice if in doubt.

An excerpt of Section 142 of the Local Government Act, 1976 (LGA) has been reproduced below for taxpayers to understand:

Section 142: Objections.

·Any person aggrieved on any of the following grounds:

(a) that any holding for which he is rateable is valued beyond its rateable value;

(b) that any holding valued is not rateable;

(c) that any person who, or any holding which, ought to be included in the Valuation List is omitted there from;

(d) that any holding is valued below its rateable value; or

(e) that any holding, or holdings, which have been jointly or
separately valued ought to be valued otherwise, may make an objection in
writing to the local authority at any time not less than fourteen days
before the time fixed for the revision of the Valuation List.

·All objections shall be enquired into and the persons making them
shall at such enquiry be allowed an opportunity to be heard either in
person or by an authorised agent.

I would like to come clean and declare that I am a rate-payer and
have a vested interest in challenging the proposed rate hike by DBKL.

Go ahead, flood DBKL with letters of objection.

Questioning DBKL’s move on KLites

Justifying the proposed assessment rate hike

THE media has reported that two former mayors – Tan Sri Ahmad Fuad Ismail and Tan Sri Elyas Omar – have questioned the Kuala Lumpur City Hall (DBKL) on its proposed assessment rate hike.

Ahmad Fuad, predecessor to the current mayor Datuk Seri Ahmad Phesal Talib, pointed out that he had raised reserves amounting to RM3bil prior to retiring last year.

This means Ahmad Phesal inherited RM3bil when he took over.

Ahmad Fuad reportedly said that DBKL must provide a detailed budget
for 2014, with a breakdown of how much money was needed and how it would
be spent.

Elyas, meanwhile, noted that DBKL had “bigger revenue compared to
what it had 30 years ago”, adding that there was no need to increase
rates “even by 10%”.

DBKL must be selective and make a distinction between residential
and commercial properties. Perhaps that should be done first before it
imposes new rates on new commercial, residential and mixed development
projects. After all, pricing is reflective of current valuations and
there are so many new developments: stratified and landed, high-end
residential condo, commercial retail blocks, office blocks, shopping
complexes, SoFo, SoHo, condotel, hotels, serviced apartments and
boutique buildings.

The issue of not having enough money should not arise. As plot
ratios and density have been increased for developers in KL, more
revenue in terms of development charges levied and assessment revenue
would be collected. DBKL has also been collecting Caruman ISF
or the Infrastructure Service Fund in the millions from developers for
the development of infrastructure in KL and millions in lieu of the
non-availability of car park bays. The host of projects under way driven
by the Economic Transformation Programme, namely, the Tun Razak Exchange, Menara Warisan Merdeka (a 100-storey building next to Stadium Negara), the Kuala Lumpur Metropolis, KL Eco City, the Bukit Bintang Commercial Centre and Bandar Malaysia, the MRT and all the other abbreviations that I cannot remember are, therefore, a boon to it.

The excuse by DBKL that “the last increase was more than 20 years
ago” does not hold water because some “newly” completed properties
delivered four to five years ago had suffered the fate of a revision
with an increase of 100%-200%, as though the properties had doubled in
value within that short span of time.

Some owners in Cheras have
received notices of revision that translate into a 200% hike in rates.
Did DBKL take into consideration that the leasehold land upon which the
property is erected expires in 60 years? The property value on resale
would obviously fetch a lower price based on the diminishing lease
period.

A rebate should instead be offered to those living in stratified
properties like flats, apartments and condominiums, as they are already
paying maintenance fees to their joint management bodies (JMBs) and
management committees (MCs) for the upkeep of their infrastructure and
playgrounds, maintenance of trees and grass-cutting, sweeping, cleaning
(internal roads and drains) and rubbish disposal within their
perimeters. The JMBs and MCs maintain the building, playground, parking
lots and other facilities, while DBKL’s role is limited to cleaning the
drains and maintaining roads outside the perimeters.

Previously, DBKL’s duties covered sewerage services, but today
taxpayers have to make separate payments to Indah Water Konsortium.
Shouldn’t this issue be taken into consideration for a reduction? While
writing this article, my fellow National House Buyers Association (HBA) volunteers are scrutinising the past Auditor-General’s Report on the alleged excesses and wastages of DBKL.

DBKL’s sources of non-rate revenue

DBKL does not depend on assessment collection alone for revenue.
There are other major sources of revenue, which we term as non-rate
revenue which inter-alia are:
1. Licensing and permits from:

It seems that there is more than RM300mil of “collectables” that
DBKL has not collected from defaulting taxpayers. This, in turn, brings
us to the questions: Why not?

DBKL must only venture into value-for-money projects. There were
even a few JVs with private developers for housing and commercial
developments that were abandoned, with buyers being left in the lurch
for years. Does DBKL practise an open tender policy for all its projects
and procurements?

DBKL has ventured into various projects with private developers to
generate income in Wangsa Maju. The roads, drainage system, sewerage
system, water pipe lines and electric and telephones cables in the area
were all done without DBKL spending a single sen. Therefore, there are
other ways to obtain funds rather than placing the burden on KLites with
this assessment rate hike.

Development expenditure is largely funded by the Federal Government.
For 2013, from what I understand, DBKL expects to receive RM414.7mil
worth of Federal Government funding, RM300.5mil of Federal Government
allocation under the 10th Malaysia Plan and RM114.2mil from government
grants.

Declaration by DBKL

DBKL’s upper management must come clean to declare that they have
not been selective and biased in their choice of property location
revaluations. The upper management, the Federal Territories (FT)
Minister, mayor and the entire City Hall advisory board members must
declare that their annual rent rates too have been revalued in the
current exercise. They must declare their respective quantums of
increase based on two premises:

(i) the last increase was more than 20 years ago; and
(ii) property prices have increased in value.

What was the methodology used to compute the new rates? Show us how
DBKL’s current revenue is insufficient to meet its expenses, when the
mayor had stated in his budget speech in December 2012 that “DBKL is
already operating on an estimated surplus of RM217.7mil”. Among the
aspects of success is the increase in total revenue of RM241mil to
RM1.69bil from the previous year. It should also show why its non-rate
revenue is insufficient and why its reserves are insufficient. If DBKL
cannot do that, then it simply cannot increase the rates revenue by a
revaluation of annual rental. If the revaluation exercise is adopted, it
is irrational to impose the same percentage of levy, ie, 6% for
residential, 10% for land and 12% for commercial premises. It cannot
apply the same percentage across the board.

There must be a policy change by reducing the chargeable rates to, say, 2% for residential, 3% for land and 4% for commercial.

This does not mean that DBKL need not revisit their valuation exercise that has been found wanting by taxpayers.

The astronomical valuation based on valued rent, amount and quantum are simply preposterous.

In fact, the FT Minister’s statement “that the assessment is based
on property value” is wrong. Property assessment is based on rental
value. A hypothetical rental value is placed on the property and this is
“multiplied by 12” to obtain the annual value. What if there is no
rent? What if the yearly rental collected is not what DBKL had
estimated? Has a concise survey on annual rent collected by the taxpayer
been matched with a declaration of income collected from rent in the
taxpayer’s declaration to Lembaga Hasil Dalam Negeri vide the stamping
duty on tenancy agreements? What if there is no contract of tenancy and
the premises are rented out on a weekly basis? Perhaps, there should
only be a revaluation of properties that are converted from housing to
commercial and those which have undergone major renovation from
single-storey to double-storey units or the like, thus increasing their
build-up and useable areas.

By the way, isn’t the Federal Territory of Putrajaya due to undergo a revaluation?

Complaints galore

The proposed assessment rate hike by DBKL has understandably irked
the city’s dwellers, as the list of complaints against the standard of
service being delivered by it is rather long. Among the grievances are
roads riddled with potholes, untrimmed trees, unkempt and unsightly
public parks, undergrowth on road reserves, inconsistent rubbish
collection, broken drains, poor upkeep of playgrounds, flooding, parking
woes, uneven roads, a spike in dengue fever, illegal dump sites,
infestation of rats, illegals and beggarsillegal buntings and
billboards, poor or lack of enforcement, failure to collect rent from Council Home defaulters, lack of maintenance of public lightings ... and the list goes on and on.

By the way, has the KL Draft Local Structure Plan that was flooded
with voluminous objections from land proprietors, occupiers and vested
parties been finalised and gazetted?

Taking the legal option

“Sue them” is what the lawyers would advise. As a last resort, that seems to be the proper thing to do.

Perhaps, we should galvanise a group of ‘pro bono’ lawyers (lawyers
doing public good without fees) to commence a Public Interest Litigation
in the Courts against the Mayor, DBKL and the entire City Council Board:
http://www.dbkl.gov.my/index.php?option=com_content&view=article&id=41&Itemid=724&lang=en
for the sake of transparency and accountability. Let’s also organise a
group of experts to conduct a forensic audit on DBKL with regards to its
operating expenditures and efficiency, emoluments and overtime
expenses. Lets’ unearth how DBKL, assisted by its Board of Advisors,
has spent taxpayers’ money for the past 10 years and its vision (how
they intend to use our money) for the next 10 years. DBKL should open up
its budget to public scrutiny to justify how additional money derived
from the rates will be used to provide better services to KLites. Don’t
tell me that the very people who pay taxes to DBKL are not able to
scrutunise DBKL’s spending?

I would like to highlight the following:

“Councils spend public money. The money comes from national and
local taxes – as well as charges to users of services. Councils have a
special responsibility to tell local residents and taxpayers how they
spend your money. They do that by publishing yearly accounts and details
of their spending.

“Council accounts are the financial statements that most
organisations have to produce at the end of the year – a balance sheet
and summary of income and expenditure. But the term also covers all
related documents used to make up the council’s accounts and any report
by the external auditor about how the council organises itself to
conduct its business.

“As a local resident, or interested party, you have legal rights
which let you inspect your council’s accounts and related documents, ask
questions about the accounts, and object to them.”

Advice to Taxpayers
P/S: For those who have not lodged their ‘Notice Bantahan’ pursuant
to Section 142 of the Local Government Act, 1976, please do so, not
later than Dec 17, as otherwise, you may be deemed as having accepted
the revaluation ‘by default’.

You may choose to adopt any of the three templates as a guide for
objections against the DBKL hike, which can be uploaded from our website
at: www.hba.org.my.